Circular No. 46/2003/TT-BTC guides enterprises' participation in purchasing government bonds for the first time and the trading activities of organizations permitted to trade government bonds.

CIRCULAR

Guidelines for the first-time purchase of government bonds by enterprises and trading activities in government bonds of organizations permitted to trade in government bonds

enterprises and business activities of purchasing and selling government bonds

of organizations permitted to trade government bonds

Pursuant to Ordinance No. 12/1999/UBTVQH10 dated April 27, 1999 on the issuance of government bonds for national construction;

Pursuant to Decree No. 28/2003/NĐ-CP dated March 31, 2003 of the Government stipulating the issuance of government bonds for national construction in 2003 - Educational Bonds;

Pursuant to the Law on Corporate Income Tax No. 03/1997/QH9 dated May 10, 1997;

The Ministry of Finance hereby issues guidelines on the use of capital for the first-time purchase of government bonds by enterprises and trading activities in government bonds of organizations permitted to trade in government bonds as follows:

I. GUIDELINES ON THE USE OF CAPITAL

FOR THE FIRST-TIME PURCHASE OF GOVERNMENT BONDS BY ENTERPRISES

1. Sources of funds for purchasing government bonds: Enterprises shall not use funds allocated from the State budget for the implementation of public service tasks, state reserves, price stabilization reserves, or funds assigned by the State for specific purposes to purchase government bonds.

In addition to the aforementioned State budget funds, enterprises may use all sources of capital within their management scope as prescribed by law to participate in the first-time purchase of government bonds in accordance with the general policy of the State.

2. Income from government bonds: All types of enterprises are exempt from corporate income tax on interest income derived from the first-time purchase of government bonds issued by the State Treasury.

3. Accounting for interest income from government bonds: Interest income from the aforementioned government bond purchases shall be accounted for as projected revenue in the annual financial activity income of the enterprise (except for credit institutions, which shall account it as revenue) according to the following formula:

Where: the amount of government bonds purchased is calculated based on the face value of the government bonds

Any difference due to actual inflation over five years plus (+) an interest rate higher than 40% for five years shall be additionally paid by the State and accounted for as financial activity income (or revenue for credit institutions) in the final year.

Example: In May 2003, Enterprise A purchased 10 billion VND worth of government bonds with an interest rate of 8% per annum. By April 2008, the actual inflation over five years plus (+) the interest rate for five years reached 45%. The allocation of interest income from government bonds into the annual income of the enterprise is as follows:

- Year 2003: (10 x 8%) x 8/12 = 0.533 billion VND

- Year 2004: (10 x 8%) x 12/12 = 0.8 billion VND

- Year 2005: (10 x 8%) x 12/12 = 0.8 billion VND

- Year 2006: (10 x 8%) x 12/12 = 0.8 billion VND

- Year 2007: (10 x 8%) x 12/12 = 0.8 billion VND

- Year 2008: (10 x 8%) x 4/12 + {10 x (45% - 40%)} = 0.767 billion VND

The aforementioned interest income shall be accounted for as financial activity income (or revenue for credit institutions) annually, but shall not be included in taxable income for corporate income tax purposes in that fiscal year due to the exemption under Ordinance No. 12/1999/UBTVQH10 on the issuance of government bonds for national construction.

II. GUIDELINES ON TRADING ACTIVITIES IN GOVERNMENT BONDS OF ORGANIZATIONS PERMITTED TO TRADE IN GOVERNMENT BONDS

1. Organizations permitted to trade in government bonds are credit institutions, which are Vietnamese legal entities operating under the Law on Credit Institutions, and are allowed to trade in government bonds with other organizations and individuals in accordance with Article 10 of Decree No. 28/2003/NĐ-CP dated March 31, 2003 on the issuance of government bonds for national construction in 2003 - Educational Bonds.

2. Organizations trading in government bonds must organize monitoring and accounting of their trading activities in government bonds in full and clearly, and have the obligation to pay taxes to the State budget in accordance with current laws and this Circular.

3. Organizations trading in government bonds are subject to inspection and supervision by financial authorities and specialized State management agencies in accordance with the law.

4. Organizations eligible to trade in government bonds do not need to obtain permission from State management agencies when conducting trading activities in government bonds.

5. During the trading process, organizations trading in government bonds must publicly announce the purchase and sale prices of government bonds and must conduct transactions at the announced prices.

For government bonds purchased less than 12 months from the issuance date indicated on the bond, the minimum purchase price shall not be lower than 90% of the face value indicated on the bond.

For government bonds purchased 12 months or more from the issuance date indicated on the bond, the purchase price of the government bond shall be determined based on the face value of the government bond and accrued interest up to the purchase date and must exceed the face value of the government bond.

6. Organizations trading government bonds are obligated to pay income tax according to the provisions of the Law on Corporate Income Tax and current legal documents. The method for determining taxable income in each case is as follows:

a. For income derived from the purchase and sale of government bonds in business operations, if there is any taxable income, it shall be determined as follows:

In the case where the organization trading government bonds maintains a separate accounting ledger to track and record all revenues and expenses related to the business activities of purchasing and selling government bonds:

If the organization trading in government bonds does not separately account for revenues and expenses related to the trading activities:

b. For income derived from government bonds purchased but not sold, and directly settled with the State Treasury upon maturity or early settlement, the taxable income (if any) is determined as follows:

In the case where the organization trading government bonds maintains a separate accounting ledger to track and record all revenues and expenses related to the business activities of purchasing and selling government bonds:

If the organization trading in government bonds does not separately account for revenues and expenses related to the trading activities:

Corresponding deductible expenses mentioned in points a and b above include costs related to the capital used for purchasing and organizing trading activities in government bonds.

7. It is strictly prohibited for organizations and individuals to engage in speculative trading of government bonds, causing market disruption, and artificially affecting the increase or decrease in the purchase and sale prices of government bonds.

8. If organizations trading government bonds purchase government bonds at a price lower than the minimum price specified in Clause 5, Section II of this Circular, the difference in amount must be recovered and paid into the State budget. In case of recurrence, the organization trading government bonds shall be suspended from engaging in government bond trading activities.

III. IMPLEMENTATION PROVISIONS

1. This Circular applies to the issuance of national construction bonds in 2003 - Educational Bonds and takes effect from the date the Government's Decree No. 28/2003/NĐ-CP dated March 31, 2003 comes into force.

2. In addition to the provisions of this Circular, credit institutions that are enterprises are also responsible for complying with current regulations.

3. During implementation, if difficulties arise, they should be promptly reported to the Ministry of Finance for study and resolution.